Pj Balnaves Nominees Pty Ltd v Third Szable Holdings Pty Ltd and Anor No. Scciv-02-165

PJ BALNAVES NOMINEES PTY LTD V THIRD SZABLE HOLDINGS PTY LTD AND ANOR
[2002] SASC 88

JUDGE BURLEY. The defendant has applied pursuant to SCR 25.04 for an order dismissing the plaintiff’s claim. If the defendant is to succeed it must satisfy the Court that the plaintiff’s claim against the defendant cannot succeed on any view of the facts or law or, as it was put by Lander J in Rogers v Legal Services Commission (1995) 64 SASR 572 at 588, the defendant must demonstrate that “there is no real question to be tried”.
In its statement of claim the plaintiff alleges that it entered into a lease with Jane Teresa Cummings of the land contained in Certificate of Title Register Book Volume 5063 Folio 917 and 918 (the land). That is not in dispute.
The plaintiff also pleads that the title to the land is subject to a Memorandum of Mortgage Registered Number 8732829 to the defendant. That is not in dispute. The plaintiff contends that the mortgage, which has been registered, is subject to the lease which has not been registered.
The plaintiff asserts that it has occupied the land at various times and, in particular, since 10 August 1999 when the Memorandum of Lease was executed by the plaintiff and Ms Cummings. The plaintiff asserts that it has carried on its business from premises situated on the land and that prior to September 2001 it spent various sums on the improvement of the land and placed various plant and equipment upon the land.
It is alleged, and it is common ground, that in Action No 701 of 2001 in this Court the defendant sought and obtained possession of the land. Having taken possession, the defendant has excluded the plaintiff from possession of the land. It is common ground that the defendant as mortgagee has sold the land to Robin Anne Davis. The contract between the defendant and Ms Davis provided for settlement on 25 January 2002 but it is common ground that that settlement has not as yet taken place.
Paragraphs 14 and 15 of the statement of claim are as follows:
“14.The defendant at the time of the execution of the Mortgage referred to above was aware of the possession of the land by the plaintiff and was aware that the plaintiff was paying rent for the land to the registered proprietor.
15.The defendant took its interest pursuant to the said mortgage with knowledge of the interest of the plaintiff in the land.”
It is common ground that the contract for the sale of the land to Ms Davis has not been made subject to any leasehold interest claimed by the plaintiff.
In the prayer for relief the plaintiff seeks:
“17.2a declaration that the interest of the defendant in the land ... is subject to the plaintiff’s leasehold interest as set out in Memorandum of Lease dated 10 August, 1999;
17.3an order that the defendant deliver up possession of the land to the plaintiff;
17.4an injunction preventing the defendant from selling the land save for any sale subject to the leasehold interest of the plaintiff;”
The defendant contends that on any view of the facts or law the plaintiff is not entitled to the relief set out in paragraph 17.2, 17.3 and 17.4 of the statement of claim. The defendant seeks an order dismissing the plaintiff’s claim to that extent.
With one exception, to which I will refer later in these reasons, there are no material disputes of fact. Subject to that exception, all necessary findings of fact have been made by me by reference to the undisputed material contained in the affidavits admitted on the application and the exhibits thereto.
The mortgage given by Ms Cummings to the defendant was executed on 6 August 1999. It was not registered until 31 August 1999. The lease, the subject of the plaintiff’s claim, was executed by Ms Cummings and the plaintiff on 10 August 1999. The lease has never been registered on the title.
It is not disputed that Ms Cummings defaulted under the mortgage by failing to repay monies due pursuant to the terms of the mortgage. As I have earlier said, the defendant took possession proceedings pursuant to Part XVII of the Real Property Act, 1886.
The order for possession was made without opposition from Ms Cummings on 8 August 2001. On that occasion, Mr O’Halloran appeared as solicitor for the plaintiff and Mr Baillie appeared as solicitor for the defendant. The defendant subsequently entered into possession of the land pursuant to the order for possession.
It is common ground that the defendant has exercised its power of sale pursuant to the mortgage in relation to the sale of the land to Ms Davis.
Neither Ms Cummings nor Ms Davis are parties to this action.
Although in the possession proceedings, Ms Cummings has sought to set aside the mortgage on equitable grounds, there has been no challenge to the validity of the mortgage by the plaintiff in these proceedings. On the contrary, the plaintiff assumes the validity of the mortgage, but says that its unregistered interest as lessee prevails over the defendant’s registered interest as mortgagee. Mr Swan, counsel for the plaintiff, has argued that the mortgage did not take effect until it was registered, that by then the lease had been granted to the plaintiff and that accordingly the mortgage could only take effect subject to the lease. This was so, he argued, because the interest of the registered proprietor (Ms Cummings), at the time of registration of the mortgage, was the fee simple in the land qualified as it was by the grant of a lease to the plaintiff. It is in this context that the defendant has pursued its application for immediate relief.
Mr Wells QC, counsel for the defendant, advanced a number of grounds to support the application:
(a)That the “lease” was, at best, no more than a licence and therefore did not qualify Ms Cummings’ fee simple interest;
(b)That even if the lease conferred in equity a leasehold interest upon the plaintiff, it did not prevail over the mortgage because the defendant never consented to the lease;
(c)That, in equity, any leasehold interest conferred by the lease, merged with the fee simple because the lessor and lessee were both trustees of the same trust. (I do not think this contention may be pursued by the defendant because, after Mr Wells completed his submissions, Mr Swan sought and obtained leave to file an additional affidavit of Mr Balnaves which asserted that there were two trusts at the relevant time with different objects. In light of that affidavit, there is a material dispute of fact and it would be unsafe to attempt to decide the merger point.)
Lease or Licence
A copy of the lease is Exhibit JTC1 to the affidavit of Ms Cummings sworn on 23 January 2002 and filed in the possession action. The front page contains a panel recording of the mortgage to the defendant as an encumbrance in respect of Ms Cummings’ estate in fee simple. Clause 2 of the lease is as follows:
“DEMISE
2.On the Commencement Date:
Grant of Demise
2.1. in consideration of the premises and the obligations on the part of the Lessee to be performed or observed hereunder and subject to the terms and conditions of this Lease:
2.1.1.the Lessor HEREBY DEMISES to the Lessee; and
2.1.2.the Lessee HEREBY ACCEPTS from the Lessor a demise of
the Demised Premises and all rights of way comprised therein and on the terms and conditions hereafter expressed or implied; and
Acknowledgement
2.2. notwithstanding the provisions of Clause 2 hereof the Lessor and the Lessee HEREBY ACKNOWLEDGES that the demise granted therein does not operate to grant to the Lessee possession of the Demised Premises during the continuance of this Lease and the occupation of the Demised Premises by the Lessee notwithstanding anything contained herein which may be implied to the contrary.”
The effect of the provision seems to be that notwithstanding the demise, the right to exclusive possession (or, seemingly, any right to possession) is not conferred upon the lessee. If that is the case, Mr Wells argued that, because a right to exclusive possession was an essential part of a lease, its absence required the conclusion that no leasehold interest had been created. At best the document conferred a licence to occupy, which could not prevail over the defendant’s interest as mortgagee.
Mr Swan argued that the cases were to the effect that, if a right to exclusive possession were conferred by an instrument, it may be a lease but, just because such a right is not conferred, does not mean that the instrument is not a lease. I do not think that that argument assists the plaintiff because, not only does Clause 2.2 not confer a right to exclusive possession, it also fails to confer any right to possession, exclusive or otherwise, on the plaintiff. This rather strange result is confirmed by the provisions of 4.1 of the lease which provides for quiet possession. Clause 4.1 of the lease is expressly subject to Clause 2.2.
A right to possession which creates an interest in the land, as opposed to a contractual right to occupy, is an essential part of the lease: Radaich v Smith (1959) 101 CLR 209; The Wik Peoples v The State of Queensland and Ors (1996) 187 CLR 1 at 116 per Toohey J, at 152 per Gaudron J, at 194-5 per Gummow J and at 229 per Kirby J.
The document relied upon by the plaintiff fails to confer a right to possession upon the plaintiff and as such the document has failed to create an interest in the land. Whatever rights have been created are only contractual rights enforceable by the parties to the “lease” as against each other, as opposed to a third party such as the defendant.
Mr Swan faintly argued that if the lease failed to confer a right to possession, the document could be rectified. That may or may not be the case, but not in this action where the registered proprietor, Ms Cummings, is not a defendant.
In my view, the defendant has established, by reference to the lease document relied upon by the plaintiff, that, on the facts relied upon by the plaintiff, and on any view of the law, the plaintiff cannot succeed in obtaining a declaration that the interest of the defendant in the land is subject to a leasehold interest held by the plaintiff.
I must next consider the question of the lack of consent of the mortgagee to the lease. I assume for this purpose that the lease confers an equitable leasehold interest in the land on the plaintiff. I commence by referring to Section 118 of the Real Property Act, the relevant parts of which are as follows:
“118. No lease of mortgaged ... land shall be valid and binding against any mortgagee ... of the land unless such mortgagee ... shall have consented in writing to such lease prior to the same being registered.”
This section deals with a prior registered mortgage and a subsequently registered lease. The provision seems to be fatal to the plaintiff’s claim. It is evident from the lease that it has never been consented to by the defendant. Mr Swan argued that the defendant’s consent was not necessary because the lease was never registered and therefore Section 118 of the Real Property Act did not apply. I accept that it is correct that Section 118 does not apply because it deals with prior and subsequent registered interests, whereas in this case only the mortgage has been registered. But, Section 118 is relevant because, if by virtue of the section a subsequent registered instrument cannot prevail over or qualify a prior registered mortgage unless the mortgagee’s consent is endorsed on the former, a fortiori, an unregistered instrument cannot qualify the mortgagee’s rights. It is implicit in Section 118 that if a registered lease which has not been consented to by the mortgagee cannot bind the mortgagee, nor can an unregistered lease. This view is consistent with what was said by Professor Sykes in the 4th Edition of The Law of Securities, pp 260-262. At the conclusion of his discussion of the cases he said (at 262):
“Where the lease made by the mortgagor is not protected by the statutory provisions, that is where it is an unregistered lease or a registered lease which has not secured consent, and is not, in New South Wales and Tasmania, made pursuant to the adopted general law provisions, the position would be that the mortgagee, not being bound by the lease, could after default was made by the mortgagor, eject the tenant as a mere trespasser ...”.
See also Carvita Holdings Pty Ltd v Mitsubishi Bank of Australia (1993) 6 BPR 13,227.
In my view, contrary to Mr Swan’s submission, where the plaintiff relies upon an unregistered interest, and subject to a number of exceptions specifically provided for in the Real Property Act (none of which apply to the case at bar), such an interest cannot prevail over or qualify the defendant’s registered interest as mortgagee. I reject Mr Swan’s submission that the mortgage does not take effect until it is registered. Up to the time the mortgage was registered, the mortgage and lease respectively created equitable interests because each gave rise to an interest in the land recognised and enforced by equity. Once the mortgage was registered, the registration conferred the legal title as mortgagee upon the defendant. The registered interest of the defendant thereafter prevails over the equitable interest of the lessee. Section 69 VIII of the Real Property Act does not apply because the lease is for more than one year, a period which in any event has expired. No notions of notice of the lease or of occupation of the property by the plaintiff could operate to qualify the defendant’s interest. If the position were otherwise the interests of a person holding an unregistered lease at the time of the registration of the mortgage, would be better served by not registering the lease because Section 118, upon registration of the lease, would make it clear that, in the absence of the mortgagee’s consent to the lease, the mortgagee may dispose of the mortgage property without reference to the lease.
In light of the above reasoning, even if the document relied upon by the plaintiff is regarded as conferring a leasehold interest upon the plaintiff, the lack of consent to the lease by the mortgagee precludes a determination that the interest of the defendant as mortgagee is subject to the interest of the plaintiff as lessee.
It follows that, for all of the above reasons, the plaintiff cannot obtain an order for possession against the defendant because the defendant’s right to possession is superior to that of the plaintiff. Nor is the plaintiff able to obtain an injunction preventing the defendant from selling the land unless the sale is subject to the claimed leasehold interest of the plaintiff.
There will be an order that the plaintiff’s claim against the defendant seeking the relief set out at paragraphs 17.2, 17.3 and 17.4 of the statement of claim, be dismissed. I will hear the parties as to costs.

[2002] SASC 88

13 March 2002